IGI Logo

Performance robust; outlook positive

* TITAN’s robust business momentum continued in 2QFY23. The three-year Jewelry sales CAGR of 22-23% in recent quarters is extremely remarkable. The management indicated a healthy 17-19% growth in festive season demand across its key businesses in Oct’22.

* Its guidance on margin for subsequent quarters is relatively muted, given its outperformance in 2QFY23, as there will be: a) a lesser share of diamond inventory gains, b) lower proportion of studded Jewelry vis-à-vis 2QFY23, and c) additional investment in ad spends, especially in the Eyewear segment, to boost growth.

* As indicated in our detailed note of last week, TITAN has reported a far superior revenue and earnings growth metrics v/s other largecap Consumer plays in recent years. Its medium-term outlook is also attractive. We maintain our Buy rating.

Beat on all fronts

* Consolidated revenue grew 22% YoY to INR91.6b (est. INR87.4b).

* EBITDA grew 28.8% YoY to INR12.5b (est. INR11.2b) in 2QFY23.

* PBT stood at INR11.4b (est. INR10.1b) in 2QFY23 v/s INR8.7b in 2QFY22.

* Recurring PAT grew 30.3% YoY to INR8.4b (est. INR7.5b) in 2QFY23. ? Consolidated gross margin rose 260bp YoY and 210bp QoQ to 27.6% (est. 25.7%).

* As a percentage of sales, stable staff costs (up 10bp YoY), higher ad spends (up 60bp), and other expenses (up 120bp) led to a 70bp expansion in EBITDA margin to 13.6% (est. 12.8%) in 2QFY23. This is TTAN’s highest second quarter margin after 2QFY06.

* Sales/EBITDA/adjusted PAT grew 70%/121%/147% YoY to INR186.1b/ INR24.4b/INR16.3b in 1HFY23.

* Adjusted segmental performance: Jewelry sales grew 21.7% YoY to INR80b. Segment margin rose 140bp YoY and 100bp QoQ to 13.6%. Sales from Watches and Wearables grew 20.5% YoY to INR8.3b, with an EBIT margin of 14.7% (up 160bp YoY and 220bp QoQ) in 2QFY23.

Highlights from the management commentary

* The management did not offer any guidance on growth in the Jewelry business in 3QFY23 as the base of wedding Jewelry sales is extremely high in 3QFY22 and 3QFY21.

* Of the 23% Jewelry sales CAGR in the past three years, higher gold prices accounts for 6-7%. Even adjusted for store additions, customer-led growth is healthy. New buyers constituted 46% of total buyers in 2QFY23.

* Studded ratio, while going up, is still below pre-COVID levels. Higher sales growth in South and East India (i.e. markets with a lower proportion of studded Jewelry) in the last two-to-three years is part of the reason. Over the last twoto-three years, studded sales have been growing at a healthy pace (16-17% CAGR), but is lagging overall Jewelry sales (~23% CAGR).

* Jewelry: There were some gains in its diamond inventory in 2QFY23. The second quarter usually sees a higher proportion of studded sales (a cumulative margin impact of ~200bp from both diamond and studded). For the next few quarters, the management has maintained its margin guidance at 12-13% in the Jewelry segment as compared to 14.7% in 2QFY23.

* Watches and Wearables: EBIT margin is likely to remain at 13-14% levels going forward, slightly lower than the 14.7% in 2QFY23.

* Eyewear: Given its investments in the Eyewear segment in 2HFY23, EBIT margin is likely to be in the 15% range as compared to ~17% in 2Q.

Valuation and view

* Changes to our model have resulted in a 9%/8% rise in our FY23/FY24 EPS estimate due to a positive earnings surprise in 2QFY23 as well as a better than expected commentary for Oct’22.

* TTAN has a strong runway for growth, given its market share of sub-10% in Jewelry and continued struggles faced by its unorganized and organized peers. Its medium-to-long-term earnings growth visibility is nonpareil. Despite the volatility in gold prices and COVID-led disruptions, earnings CAGR has been stellar at 24% for the past five-years ending FY22. We expect this trend to continue, with a 31% earnings CAGR over FY22-24. In our last week’s detailed report, we had highlighted how TTAN has consistently performed better than its peers and listed key monitorables.

* The stock's near-term multiples appear expensive, but its long runway for profitable growth warrants premium multiples. We maintain our Buy rating, with a TP of INR3,210 per share (63x Sep'24E EPS).

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer